JAKARTA (TheInsiderStories) – President Joko Widodo has decided to widens the 2021 State Budget’ deficit from 4.17 of gross domestic products (GDP) to 5.2 percent of GDP, said minister of finance today. The reasoned, the country still needs lots of funds to handle the COVID-19 outbreak and to recover the domestic economy.
“The 2021 State Budget’ design (which we prepared) is how we deal with this uncertainty and the handling of the COVID-19 is going well. And in today’ limited meeting the president decides that the deficit should be widened to 5.2 percent of GDP,” Sri Mulyani Indrawati told reporters in a virtual conference after a limited meeting led by the head of state on Tuesday (07/28).
She added, state expenditure reserves were allocated Rp179 trillion (US$12.34 billion) or 14.3 percent of total GDP and would be allocated for national economic recovery (ERP) program, especially for food security, industrial estate development supported by infrastructure, information and technology for internal equity, education, health, and vaccine costs.
According to Indrawati, Indonesia’ economic growth is expected to recover to the level of 0.4 percent of GDP in the 3rd quarter (Q3) of 2020 and in Q4 rise to 3 percent. “If that happens our economy will remain in the positive zone (in this year),” she said.
The minister predicted Indonesia’ economic growth could fall to the level of -5.1 percent of GDP in the Q2 of 2020 due to the pandemic. In Q1 this year, the largest economic growth in Southeast Asia fell to 2.97 percent from the previous year.
According to her, the downward trend in the global economy was transmitting rapidly to the national economy and causing disruption to the demand and supply side of the country. As is known, the government uses the 2020 State Budget as the main instrument to overcome the impact of the epidemic and for the ERP program.
She assessed that the deepest impact of the virus occurred in May and will increase in Q3 and Q4. At the end of this year, he estimates that economic growth will end in the range of -0.4 percent to 2.7 percent of GDP. In 2019, the biggest economy in the Southeast ended at 5.0 percent of GDP.
“With the dynamics that occurred in Indonesia in the second quarter, our economy will be quite depressed and there will be a correction and we can minimize it in the next quarter,” said Indrawati on July 9.
The ministry of finance reported in the 1H of 2020 the realization of a budget deficit of 1.57 percent of GDP, in line with the decline in state revenues due to the economic slowdown. While, the government expenditure is still growing positively to support the handling of the impact of COVID-19.
The treasury office added that economic growth in the second half is expected to improve and macroeconomic stability is maintained. For this reason, economic growth is projected to grow positively with the support of the PEN program. The stimulus program is also expected to encourage public consumption in this semester, supported by investment.
However, international trade is estimated to continue to contract due to low global demand. In addition, inflation will increase gradually when consumption recovers. Food inflation is relatively under control, but there is still a risk of food price fluctuations during planting.
The country’ treasurer said, the Rupiah is expected to strengthen in line with macroeconomic stability and capital inflows into the country, but remain alert to the risks of global financial market volatility. Then, oil prices still fluctuate due to the influence of global supply and demand and geopolitical factors.
Then, oil and gas lifting will be optimized to achieve targets by maintaining work area economies, cost efficiency, and ensuring that oil and gas streaming projects in 2020 run on time.
As reported, various international institutions provide projections on Indonesia’ economic growth, which shows high uncertainty, especially in 2020. The International Monetary Fund estimates Indonesian economy contraction 0.3 percent and the World Bank mentions zero growth.
The OECD also projects that the Indonesian economy will be in the range of 3.9 to -2.8. While the Asian Development Bank is projecting -1 percent.
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